Consumers make many decisions in everyday life involving finances, food, and health. It is known from behavioral economics research that people are often driven by short-term gratification, that is, people tend to choose the immediate, albeit smaller reward. But choosing the delayed reward, that is, delaying the gratification, can actually be beneficial. How can we motivate consumers to resist the "now" and invest in their future, leading to sustainable or healthy habits? We review recent developments from behavioral and neuroimaging studies that are relevant for understanding consumer decisions. Further, we present results from our field research that examined whether we can increase the perceived value of a (delayed) environmental benefit using tailored communication, that is, change the way it is framed. More specifically, we investigated whether we can boost the value of an abstract, long-term "green" claim of a product by expressing it as a concrete, short-term benefit. This is a new application area for behavioral economics.
We conducted an experiment with 182 inmates from a maximum security prison to analyze the impact of criminal identity salience on cheating. The results show that inmates cheat more when we exogenously render their criminal identity more salient. This effect is specific to individuals who have a criminal identity, because an additional placebo experiment shows that regular citizens do not become more dishonest in response to crime-related reminders. Moreover, our experimental measure of cheating correlates with inmates' offenses against in-prison regulation. Together, these findings suggest that criminal identity salience plays a crucial role in rule violating behavior.
We sort currencies into portfolios by countries’ past consumption growth. The excess return of the highest- over the lowest-consumption-growth portfolio – our consumption carry factor – compensates for negative returns during world-wide downturns and prices the cross-section of portfolio-sorted and of bilateral currency returns. Empirically, sorting currencies on consumption growth is very similar to sorting currencies on interest rates. We interpret these stylized facts in a habit formation model: sorting currencies on past consumption growth approximates sorting on risk aversion. Low (high) risk-aversion currencies have high (low) interest rates and depreciate (appreciate) in times of global turmoil.
This paper introduces a model of limited consumer attention into an otherwise standard new trade theory model with love-of-variety preferences and heterogeneous firms. In this setting, we show that international integration needs not be welfare enhancing if the consumers' capacity to gather and process information is limited. Rather, it intensifies competition for scarce consumer attention, which causes mutual overbidding of producers in their advertising expenditures. The mutual overbidding renders advertising—which is informative in principle—wasteful and diverts purchases to imported goods at an inefficient scale. Wasteful advertising provides scope for policy intervention in the form of an advertising tax. However, if the tax instrument is not allowed to discriminate against foreign producers, it cannot eliminate inefficient diversion of consumer purchases to imports; hence it needs not be successful in securing gains from international integration in this framework.
The growth of neuroeconomics as an academic discipline has been inextricably tied to the development of research methods to study brain function and its relationship to behavior. The aim of this chapter is to give an overview of these methods at a cursory level, while at the same time referring the reader to excellent textbooks and primary research articles for more in-depth information. The chapter focuses primarily on the conceptual issues involved in choosing a research technique and evaluating results using different techniques. As such, it is primarily intended for those who are new to neuroeconomics and cognitive neuroscience and who seek guidance on how to evaluate the strengths and limitations of published work. Accordingly, each technique is introduced in conjunction with specific examples drawn from recent neuroeconomic studies.
Bulimia nervosa (BN) is a growing health concern and its consequences are especially serious given the compulsive nature of the disorder. However, little is known about the mechanisms underlying the persistent nature of BN. Using data from the NHLBI Growth and Health Study and
instrumental variable techniques, we document that unobserved heterogeneity plays a role in the persistence of BN, but up to two-thirds of it is due to state dependence. Our findings suggest that the timing of policy is crucial: Preventive educational programs should be coupled with more intense (rehabilitation) treatment at the early stages of the BN behaviors.
There are two regularities we have learned from experimental studies of choice under risk. The
first is that the majority of people weigh objective probabilities nonlinearly. The second regularity,
although less commonly acknowledged, is that there is a large amount of heterogeneity in how
people distort probabilities. Despite this, little effort has been made to identify the source of
heterogeneity. We explore the possibility that personality type is linked to probability distortions.
Using validated psychological questionnaires, we clustered participants into distinct personality types: motivated, impulsive, and affective. We found that the motivated participants viewed gambling as more attractive, whereas the impulsive participants were the most capable of discriminating non-‐‑extreme probabilities. Our results suggest that the observed heterogeneity in probability distortions may be explained by personality profiles, which can be elicited though standard psychological questionnaires.
Humans and animals value the opportunity to choose by preferring alternatives that offer more rather than fewer choices. This preference for choice may arise not only from an increased probability of obtaining preferred outcomes but also from the freedom it provides. We used human neuroimaging to investigate the neural basis of the preference for choice as well as for the items that could be chosen. In each trial, participants chose between two options, a monetary amount option and a "choice option." The latter consisted of a number that corresponded to the number of everyday items participants would subsequently be able to choose from. We found that the opportunity to choose from a larger number of items was equivalent to greater amounts of money, indicating that participants valued having more choice; moreover, participants varied in the degree to which they valued having the opportunity to choose, with some valuing it more than the increased probability of obtaining preferred items. Neural activations in the mid striatum increased with the value of the opportunity to choose. The same region also coded the value of the items. Conversely, activation in the dorsolateral striatum was not related to the value of the items but was elevated when participants were offered more choices, particularly in those participants who overvalued the opportunity to choose. These data suggest a functional dissociation of value representations within the striatum, with general representations in mid striatum and specific representations of the value of freedom provided by the opportunity to choose in dorsolateral striatum.
